John A. Jaeger, CCE Manager Credit & Accounts Receivable Follett Higher Education Group. Extend Credit Management Financial Analyst Investor

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1 John A. Jaeger, CCE Manager Credit & Accounts Receivable Follett Higher Education Group Extend Credit Management Financial Analyst Investor Establish the Objectives Study the Industry and Economic Climate Know the Firm Evaluate the Financial Statements Summarize the Findings

2 Trend analysis comparing the company to itself Comparing the company to a like company Compare the company to published standards Compare the company to your standards Supervalu, Inc. EDEN PRAIRIE, MN

3 FACTS: In business over 140 years Retailer and wholesaler About 130,000 employees 1,102 Traditional Store 1,332 Hard Discount Locations 2,700 Independent locations D & B Rating 4A4 Paydex 74 Frisk Score 3 Z Score -0.9 Fiscal Danger Moody s B3 negative S&P B Negative

4 CURRENT ASSETS Current Assets Cash Receivables Inventories 2,150 2,270 2,342 2,709 Other Assets Total CA 3,225 3,420 5,721 6,114 LONG TERM ASSETS Long Term Assets PPE 6,362 6,604 7,026 7,528 Goodwill 847 1,984 3,698 3,748 Intangible Assets 809 1,170 1,493 1,584 Other Assets Long Term Assets 8,828 10,338 12,725 13,499 CURRENT LIABILITIES Payables 1,965 2,107 2,199 2,441 Accrued Vacation Current Maturities Other CL Total CL 3,590 3,786 4,167 4,472

5 LONG TERM LIABILITIES Long Term Liabilites LTD 5,868 6,348 7,022 7,968 Pensions 1, ,036 1,137 Other LTD 1,448 1,528 1,324 1,446 Total LTD 8,442 8,632 9,382 10,551 EQUITY Shareholder Equity Stock Capital in Excess 2,855 2,855 2,857 2,853 Accumulaed Other (657) (446) (478) (503) Retained Deficit (1,892) (778) Treasury Stock (515) (521) (528) (541) Total Equity 21 1,340 2,887 2,581 INCOME STATEMENT Income Statement Net Sales 36,100 37,534 40,597 44,564 Cost of Sales 28,081 29,124 31,444 34,451 Gross Profit 8,019 8,410 9,153 10,113 SGA Expenses 7,106 7,516 7,952 8,746 Goodwill Imparement 1,432 1, ,524 Operating Profit (519) (976) 1,201 (2,157) Interest, Net (509) (547) (569) (622) EBT (1,028) (1,523) 632 (2,779) Income Tax Provision 12 (13) Net Earning (1,040) (1,510) 393 (2,855)

6 CASH FLOW STATEMENT Cash Flow Statement Operations 1,056 1,163 1,474 1,534 Investing (484) (227) (459) (1,014) Financing (587) (975) (1,044) (523) Net Cash Flow (15) (39) (29) (3) Cash Beginning Cash at Year End Common size Balance Sheet Income Statement Vertical Horizontal COMMON SIZE ASSETS Balance Sheet Cash 1.3% 1.3% 1.1% 1.2% Receivables 6.1% 5.4% 4.4% 4.5% Inventories 17.8% 16.5% 12.7% 13.8% Other Assets 1.6% 1.7% 1.9% 1.4% PPE 52.8% 48.0% 38.1% 38.4% Goodwill 7.0% 14.4% 20.0% 19.1% Intangible Assets 6.7% 4.2% 2.8% 3.3% Other Assets 6.7% 4.2% 2.8% 3.3%

7 COMMON SIZE LIABILITIES Balance Sheet Payables 16.3% 15.3% 11.9% 12.4% Accrued Vacation 4.6% 4.0% 3.1% 3.2% Current Maturities 3.2% 2.9% 3.3% 2.6% Other CL 5.7% 5.2% 4.2% 4.5% LTD 48.7% 46.1% 38.1% 40.6% Pensions 9.3% 5.5% 5.6% 5.8% Other LTD 12.0% 11.1% 7.2% 7.4% COMMON SIZE EQUITY Shareholder Equity Stock 1.9% 1.7% 1.2% 1.2% Capital in Excess 23.7% 20.8% 15.5% 14.5% Accumulated Other -5.5% -3.2% -2.6% -2.6% Retained Deficit -15.7% -5.7% 4.4% 2.8% Treasury Stock -4.3% -3.8% -2.9% -2.8% INCOME STATEMENT Income Statement Net Sales 36,100 37,534 40,597 44,564 Cost of Sales 28,081 29,124 31,444 34,451 Gross Profit 8,019 8,410 9,153 10,113 SGA Expenses 7,106 7,516 7,952 8,746 Goodwill Imparement 1,432 1, ,524 Operating Profit (519) (976) 1,201 (2,157) Interest, Net (509) (547) (569) (622) EBT (1,028) (1,523) 632 (2,779) Income Tax Provision 12 (13) Net Earning (1,040) (1,510) 393 (2,855)

8 INCOME STATEMENT COMMON SIZE Income Statement Net Sales 100.0% 100.0% 100.0% 100.0% Cost of Sales 77.8% 77.6% 77.5% 77.3% Gross Profit 22.2% 22.4% 22.5% 22.7% SGA Expenses 19.7% 20.0% 19.6% 19.6% Goodwill Imparement 4.0% 5.0% 0.0% 7.9% Operating Profit -1.4% -2.6% 3.0% -4.8% Interest, Net -1.4% -1.5% -1.4% -1.4% EBT -2.8% -4.1% 1.6% -6.2% Income Tax Provision 0.0% 0.0% 0.6% 0.2% Net Earning -2.9% -4.0% 1.0% -6.4% INCOME STATEMENT W/O GOODWILL Income Statement Net Sales 100.0% 100.0% 100.0% 100.0% Cost of Sales 77.8% 77.6% 77.5% 77.3% Gross Profit 22.2% 22.4% 22.5% 22.7% SGA Expenses 19.7% 20.0% 19.6% 19.6% Operating Profit 2.5% 2.4% 3.0% 3.1% Interest, Net -1.4% -1.5% -1.4% -1.4% EBT 1.1% 0.9% 1.6% 1.7% Income Tax Provision 0.0% 0.0% 0.6% 0.2% Net Earning 1.1% 1.0% 1.0% 1.5% BALANCE SHEET HORIZONTAL Current Assets Cash 65.4% 8.6% 87.9% 100.0% Receivables 83.5% 309.6% 93.1% 100.0% Inventories 79.4% 259.7% 86.5% 100.0% Other Assets 66.7% 8.7% 122.0% 100.0% Total CA 52.7% % 93.6% 100.0% Long Term Assets 100.1% 32.9% 100.0% 100.0% PPE 84.5% 328.7% 93.3% 100.0% Goodwill 22.6% 26.4% 98.7% 100.0% Intangible Assets 51.1% 31.2% 94.3% 100.0% Other Assets 126.8% 36.6% 79.5% 100.0% Long Term Assets 65.4% 76.6% 94.3% 100.0%

9 Comments Concerns DUPONT METHOD Return on Equity NI / SE Components Margins NI / Sales Turnover Sales / Assets Leverage Assets / Equity CALCULATION Net Income Sales X Assets X Sales Assets Equity

10 RETURN ON EQUITY NI / Sales 1.1% 1.0% 1.0% 1.5% Sales / Assets 299.5% 272.8% 220.1% 227.2% Assets / Equity % % 638.9% 759.9% ROE % 26.9% 13.6% 25.9% RETURN ON EQUITY Net Income Goodwill Impar./ Shareholder Equity NI/SE % 26.9% 13.6% 25.9% Net Income Goodwill Impairment / Total Assets NI/SE 3.3% 2.6% 2.1% 3.4%

11 Comments Concerns MARGINS Gross Profit Gross Profit / Net Sales Operating Profit Operating Profit / Net Sales Net Profit Net Profit (W/O Impairment / Net Sales MARGINS Gross Profit 22.2% 22.4% 22.5% 22.7% Operating Profit 2.5% 2.4% 3.0% 3.1% Net Profit 1.1% 1.0% 1.0% 1.5%

12 STOCK PRICE Comments Concerns TURNOVER Accounts Receivable in Days AR/ (net Sales / 365) Inventory in Days Inventory / (Cost of Goods / 365) Total assets Turnover Net Sales / Total Assets

13 TURNOVER AR In Days Inventory in Days Total Asset TO Comments Concerns Debt Ratio Total Liabilities / Total Assets Debt to Equity Total Liabilities / Equity

14 LEVERAGE Debt Ratio Debt to Equity Comments Concerns Working Capital Current Assets Current Liabilities Current Ratio Current Assets Current Liabilities Quick Ratio Current Assets Inventory / Current Liabilities

15 LIQUIDITY Working Capital (365) (366) 1,554 1,642 Current Ratio 89.83% 90.33% % % Quick Ratio 29.94% 30.38% 81.09% 76.14% Comments Concerns CASH Cash available on Balance Sheet Cash Flow operations Increase / (Decrease) in cash year over year

16 CASH Cash Cash Flow Operations 1,056 1,163 1,474 1,534 Increase (Decrease) (15) (39) (29) (3) Credit Line: Terms: Security: Support:

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